MASAGANANG SAKAHAN, INC.

(A wholly-owned subsidiary of Land Bank of the Philippines)

STATEMENTS OF FINANCIAL POSITION
December 31, 2016 and 2015
(In Philippine Peso)

Notes 2016 2015

ASSETS

Cash and cash equivalents 3 59,357,913 44,433,650

Investments
Financial assets available-for-sale securities 4 104,158 17,341,424
Investment in stocks and bonds 5 57,200 57,200
Receivables (net) 6 74,498,447 71,349,962
Inventories 7 52,462,798 41,442,810
Other assets
Prepayments 8 1,011,158 1,071,950
Others 9 2,967,502 723,959
Investment property 10 4,351,418 4,351,418
Property, plant and equipment (net) 11 21,473,229 22,362,129
Biological assets 12 48,900 30,000
TOTAL ASSETS 216,332,723 203,164,502

LIABILITIES AND EQUITY

Financial Liabilities
Accounts payable 13 62,790,624 63,040,771
Other payables 14 7,947,620 8,245,340
70,738,244 71,286,111

Equity
Share capital 15 100,000,000 100,000,000
Retained earnings 16 45,594,479 31,878,391
145,594,479 131,878,391
TOTAL LIABILITIES AND EQUITY 216,332,723 203,164,502

The Notes on pages 8 to 20 form part of these financial statements.

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 MASAGANANG SAKAHAN, INC.
(A wholly-owned subsidiary of Land Bank of the Philipines)
STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2016 and 2015
(In Philippine Peso)

Note 2016 2015

Business income
Sales revenue 287,325,780 291,645,974
Cost of sales 226,055,418 235,335,803
Gross profit 61,270,362 56,310,171
Operating expenses 17 23,144,437 20,399,655
Income from operations 38,125,925 35,910,516
Other business income 486,574 545,726
Net income before tax 38,612,499 36,456,242
Income tax expense 20 11,493,314 10,823,942

NET INCOME 27,119,185 25,632,300

OTHER COMPREHENSIVE INCOME 0 0

TOTAL COMPREHENSIVE INCOME 27,119,185 25,632,300

The Notes on pages 8 to 20 form part of these financial statements.

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 MASAGANANG SAKAHAN, INC.
( A wholly-owned subsidiary of Land Bank of the Philippines)
STATEMENTS OF CHANGES IN EQUITY
For the Years ended December 31, 2016 and 2015
(In Philippine Peso)

Share Capital
Retained
Common Preferred
Earnings Total
Stock Stock
(Note 15) (Note 16)
Balance, December 31, 2014 90,000,000 10,000,000 14,291,917 114,291,917
Net income for CY 2015 25,632,300 25,632,300
Cash dividends declared (6,260,115) (6,260,115)
Prior period adjustments (1,785,711) (1,785,711)
Balance, December 31, 2015 90,000,000 10,000,000 31,878,391 131,878,391
Net income for CY 2016 27,119,185 27,119,185
Cash dividends declared (12,816,150) (12,816,150)
Prior period adjustments (586,947) (586,947)
Balance, December 31, 2016 90,000,000 10,000,000 45,594,479 145,594,479

The Notes on pages 8 to 20 form part of these financial statements.

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 MASAGANANG SAKAHAN, INC.
(A wholly-owned subsidiary of Land Bank of the Philippines)
STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2016 and 2015
(In Philippine Peso)

Note 2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 279,392,818 271,950,911
Collection of interest and other income 97,716 88,681
Payment of bank charges (400) (13,398)
Payment of taxes, licences and fees (9,611,177) (470,941)
Cash payments to suppliers and employees (258,294,752) (235,162,721)
Net cash generated from operating activities 11,584,205 36,392,532

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from/placement of investments 16,729,134 (12,611,516)
Payment for leasehold improvement (71,930) (34,340)
Purchase of furniture and fixtures (248,757) (13,500)
Purchase of office equipment (252,239) (73,450)
Purchase of land and land improvements 0 (18,989,000)
Purchase of biological assets 0 (30,000)
Proceeds from sale of office equipment 0 4,700
Proceeds from sale of transportation equipment 0 80,000
Net cash provided by/(used in) investing activities 16,156,208 (31,667,106)

CASH FLOWS FROM FINANCING ACTIVITIES

Payment of cash dividends (12,816,150) (6,260,115)
Net cash used in financing acitivities (12,816,150) (6,260,115)

NET INCREASE/(DECREASE) IN CASH AND

CASH EQUIVALENTS 14,924,263 (1,534,689)
CASH AND CASH EQUIVALENTS,
beginning of year 3 44,433,650 45,968,339

CASH AND CASH EQUIVALENTS, end of year 3 59,357,913 44,433,650

The Notes on pages 8 to 20 form part of these financial statements.

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 MASAGANANG SAKAHAN, INC.
(A wholly-owned subsidiary of Land Bank of the Philippines)
NOTES TO FINANCIAL STATEMENTS
(All amounts in Philippine Peso, unless otherwise stated)

1. CORPORATE INFORMATION

The Masaganang Sakahan, Inc. (MSI) was registered with the Securities and Exchange
Commission on December 11, 1974 under SEC Registration No. 59145. The LBP
acquired 100 per cent equity ownership of MSI in 1974 and invested to date P100 million
in the Corporation’s common and preferred shares of stocks.

The primary objectives of MSI are:

 To engage in and carry on the business of purchase and acquire, operate, maintain,
lease, sell and dispose of and deal in agricultural equipment and farm machineries and
all other articles pertaining to agriculture;

 To make available its farm equipment and machineries to the farmers, owner-
cultivators, agricultural lessees, tillers, and/or other beneficiaries of land reform for farm
mechanization and development so as to obtain full utilization of lands and enhancement
of agricultural products; and

 To engage in the business of purchase and sale, barter and exchange of rice and
other cereals, and other commodities of native production in the Philippines.

The Corporation operates an Agri-Development Center, formerly named as Sta. Rosa

Grains Center, located in Sta. Rosa, Nueva Ecija.

The financial statements of MSI for the year ended December 31, 2016 were authorized
for issue in accordance with the Resolution No. 2017-09 adopted by the Board of
Directors on February 15, 2017.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of financial statements preparation

The financial statements have been prepared on a historical cost basis, except for
financial asset available-for-sale securities which has been stated at fair value. All
values are rounded to the nearest peso.

Statement of compliance

The financial statements of Masaganang Sakahan, Inc. have been prepared in

accordance with Philippine Financial Reporting Standards (PFRS) and Revised Chart of
Accounts (RCA) for Government Corporations prescribed in COA Circular Nos. 2015-
010 and 2016-006.

8
The accounting policies adopted in the preparation of these financial statements are set
out below, which have been consistently applied to both years presented, unless
otherwise stated.

Adoption of new accounting standards and accounting policies

The accounting policies adopted are consistent with those of previous financial year
except that the Corporation adopted those new/revised standards mandatory for
financial years beginning on or after January 01, 2005.

The changes in accounting policies resulted from adoption of the following new or
revised standards:

 PAS 8 – Accounting Policies, Changes in Accounting Estimates and

Errors

An entity shall correct material prior period errors retrospectively in the first set of
financial statements authorized for issue after their discovery by:

a) restating the comparative amounts for the prior period(s) presented in

which the error occurred: or

b) if the error occurred before the earliest prior period presented; restating
the opening balances of assets, liabilities and equity for the earliest prior period
presented.

 PAS 17 – Leases

Lease payment is recognized as an expense on a straight-line basis over the

lease term.

 PAS 19 – Employee benefits

This standard requires an entity to recognize a liability when an employee has

provided service in exchange for employee benefits to be paid in the future; an
expense when the entity consumes the economic benefit arising from service
provided by an employee in exchange for employee benefits.

 PAS 39 – Financial instruments: Recognition and Measurement

This standard classifies the financial assets as at fair value through profit or loss;
held to maturity investments; loans and receivables; and available-for-sale
financial assets. These categories apply to measurement and profit or loss
recognition.

 PAS 40 - Investment Property

Investment property is recognized as an asset when it is probable that the future

economic benefits that are associated with the property will flow to the entity.

9
The accounting policies adopted in preparing the financial statements are as follows:

a. Cash and cash equivalents in the Statement of Financial Position comprises cash
in bank, short term investment and cash on hand.

b. Trade receivables which generally have 30-90 day term are recognized and carried
at original invoice amount. When there is objective evidence that the Corporation will not
be able to collect the receivables, an allowance for probable losses is provided.

c. Allowance for probable losses is set up for expected losses from non-moving trade
receivables considering the debtor's capacity to pay.

d. Inventories are valued at cost including the costs incurred in bringing each item to
its present condition.

The cost of the palay stocks is the actual procurement cost. For the rice inventory, the
cost includes the cost of palay issued for milling (using the FIFO valuation method) and
other related expenses during palay procurement and milling expenses. Specific
identification method of valuation of inventory of rice is being used since milling is done
on a per order basis.

e. Investment and other financial assets are recorded at cost at the time of
acquisition. Non-derivative financial assets with fixed determinable payment and maturity
are classified as held-to-maturity when the Corporation has the positive intention and
ability to hold to maturity. Investments are classified as marketable securities upon
acquisition when the maturity is 90 days to one year while investment with maturity of
more than one year is considered as long term investments.

f. Property, Plant and Equipment are recorded at cost. Depreciation is computed on

a straight-line method over the estimated useful life of the respective assets after
deducting the 10 per cent residual value. Maintenance and repairs are charged to
expenses as incurred while major repairs and betterments are capitalized. When the
items of property or equipment are disposed, the related cost and accumulated
depreciation are removed from the accounts and any gain is treated as income.

g. Investment properties are measured initially at cost. Subsequent to initial

recognition, investment properties are stated at cost less accumulated depreciation and
impairment loss.

3. CASH AND CASH EQUIVALENTS

This account consists of the following:

2016 2015
Cash in bank 50,905,976 36,746,225
High Yield Savings Account (HYSA) * 8,205,005 7,443,131
Operating fund – MSI Agri-Development Center 206,459 204,294
Cash collecting officer 473 0
Petty cash 40,000 40,000
59,357,913 44,433,650

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*This account represents placements at Land Bank of the Philippines Trust Banking
Group maturing in 30 days.

4. FINANCIAL ASSETS AVAILABLE-FOR-SALE SECURITIES

This account pertains to the net investment placement of MSI through LBP Trust
Banking Department amounting to P104,158 and P17,341,424 as at December 31, 2016
and 2015, respectively.

5. INVESTMENT IN STOCKS AND BONDS

This account consists of investment with PLDT amounting to P57,200.

6. RECEIVABLES

This account consists of trade receivables from sale of the following:

2016 2015
Rice 78,751,171 75,095,038
Palay 17,528,244 17,528,244
Others 1,151,041 1,060,258
97,430,4576 93,683,540
Allowance for impairment (22,932,009) (22,333,578)

74,498,447 71,349,962

The Other receivables consists of Receivable-Miscellaneous, Receivables-Others and

Notes Receivables amounting to P678,967, P407,465.36 and P64,608, respectively.

The Notes Receivables represents restructured past-due accounts receivables, which

are secured by hard collaterals and covered by promissory notes. This is fully provided
with allowance for impairment.

7. INVENTORIES

This account consists of the following:

2016 2015
Palay 49,136,255 40,449,067
Rice 3,301,410 537,962
Brokens (13,889) 455,246
By-products 39,022 535

52,462,798 41,442,810

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8. PREPAYMENTS

This account consists of the following:

2016 2015
Taxes withheld 342,815 138,945
Medical 273,001 247,001
Insurance premium 199,921 84,467
Taxes, licenses & fees 154,167 328,043
Uniform 25,000 80,000
Other services 10,080 20,625
Fidelity bond premium 6,174 10,499
Office rent 0 90,825
Rice benefit 0 71,545

1,011,158 1,071,950

9. OTHER ASSETS

This account consists of the following:

2016 2015

Guaranty deposits 1,846,125 370,438

Supplies and materials 994,027 206,821
Intangible assets 127,350 146,700

2,967,502 723,959

Guaranty deposits are deposits for rental of office space and photocopying machine
subject to refund. Supplies and materials represent cost of office supplies and sack
inventory.

Intangible assets pertains to the net book value of the acquired accounting system and
amortized using the straight line method. As of December 31, 2016, the total
amortization expense recognized amounted to P38,700.

10. INVESTMENT PROPERTY

This account pertains to land acquired through payment in kind by millers.

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11. PROPERTY, PLANT AND EQUIPMENT

This account is composed of the following:

Building &
Transpor- Leasehold
Land Office Furniture & Other
tation Improve- TOTAL
Land Improve- Equipment Fixtures PPE
Equipment ments
ment
Cost, January
1, 2016 10,782,000 8,087,000 6,442,934 1,183,202 837,986 415,560 25,574 27,774,256
Additions 0 0 0 252,239 248,757 0 71,930 572,926
Adjustment 27,279 27,279
Balance,
December
31, 2016 10,782,000 8,087,000 6,442,934 1,435,441 1,114,022 415,560 97,504 28,374,461
Accumulated
depreciation/
amortization,
January 1,
2016 0 160,789 3,513,111 906,828 739,243 92,156 0 5,412,127
Depreciation/
amortization 0 643,157 535,754 103,802 90,058 53,201 35,854 1,461,826
Adjustments 27,279 27,279
Balance,
December
31, 2016 0 803,946 4,048,865 1,010,630 856,580 145,357 35,854 6,901,232
Net carrying
amount,
December
31, 2016 10,782,000 7,283,054 2,394,069 424,811 257,442 270,203 61,650 21,473,229
Net carrying
amount,
December
31, 2015 10,782,000 7,926,211 2,929,823 276,374 98,743 323,404 25,574 22,362,129

12. BIOLOGICAL ASSETS

This comprises the costs of livestock totaling P30,000 consisting of four female and one
male Anglo Nubian Goats costing P6,000 each acquired on May 6, 2015 and their
offspring which were recorded as gain. These livestock are taken care of at MSI-ADC
compound for breeding purposes. The increase in fair market value of the offspring
weighing 126 kilograms as of December 31, 2016 amounted to P18,900.

13. ACCOUNTS PAYABLE

This account pertains to MSI’s trade/business payables to the following:

2016 2015

Land Bank of the Philippines (LBP) 59,311,362 61,130,991

Rice suppliers 3,479,262 1,909,780
62,790,624 63,040,771

Payables to LBP arise from collection in kind such as Palay and Rice from cooperatives
in connection with their loans to LBP.

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14. OTHER PAYABLES

This account consists of the following:

2016 2015
Income tax payable 3,327,902 3,973,873
Payable - Voucher 93,717 1,552,396
Trust liabilities – SSS, PHIC, Pag-ibig (65,910) (70,484)
Miscellaneous liabilities 4,591,911 2,789,555
7,947,620 8,245,340

Miscellaneous liabilities pertains to accrual of operating expenses such as retirement

benefits, utilities, performance bonus incentives, leave credits, milling fee, audit fee, etc.
as of December 31, 2016.

15. SHARE CAPITAL

The increase in authorized capital stock from P25 million to P100 million divided into
nine million common shares and one million preferred shares with a par value of ten
pesos (P10.00) per share was approved by the Securities and Exchange Commission
on January 14, 1993.

The Land Bank of the Philippines fully subscribed and paid the P100 million capital
stock.

16. RETAINED EARNINGS

The prior period adjustments as December 31, 2015 and 2016 pertain to the following:

Year Accounts Affected Particulars Amount

CY 2015 Miscellaneous Income Long outstanding payable after negative
result of confirmation 96,944
Taxes and Licenses Deficiency tax –CYs 2011 & 2012 (1,121,129)
Audit fee Audit fee for CYs 2012, 2013 & 2014 (558,398)
Other benefits/Bonus and
incentives Rice allocation and PBI for CY 2014 (180,759)
Rental expense Condo dues for August 2014 (22,369)
(1,785,711)
CY 2016 Loss on palay shrinkage Correction of overstatement of loss on
palay shrinkage 170,660
Bad debts Correction of overstatement of
allowance for bad debts in CY 2014 145,860
Travelling expenses Correction on traveling expenses 11,934
Miscellaneous income Unrecorded income in CY 2014 400
Cost of sales Correction in the understatement of cost
of sales in CY 2015 (631,280)
Other services Correction in the other services expense
in CY 2014 (116,322)

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 Year Accounts Affected Particulars Amount
Audit fee Audit fee for CY 2015 (124,167)
Sales Correction in the overstatement of sales (44,032)
(586,947)

The declaration of cash dividend to the National Government for CY 2016 and 2015 of
P13,559,593 and P12,816,150, respectively, were approved on February 15, 2017 in
Board Resolution No. 2017-09 and on February 17, 2016 in Board Resolution No. 2016-
08, respectively.

MSI appropriated P15.0 million for plant expansion/construction of a new warehouse

which was approved by the Board on February 15, 2017 in Board Resolution No. 2017-
10.

17. OPERATING EXPENSES

This consists of the personal services and maintenance and other operating expenses
as follows:

2016 2015
Personnel services
Salaries and wages 5,042,595 4,062,645
Other compensation
Bonus and incentives 2,862,550 2,351,020
Overtime pay 112,111 63,312
Personnel benefit contributions
SSS, Philhealth and Pag-ibig Premiums 363,501 298,138
Other personnel benefits
Other benefits 2,250,030 2,044,620
10,630,787 8,819,735
Maintenance and other operating expenses
Supplies and materials expense
Office supplies expense 1,501,836 1,482,198
Taxes, insurance premiums and other fees
Taxes, dues and license 1,305,578 1,538,436
Insurance 281,133 390,004
Other maintenance and operating expenses
Rent 952,875 1,089,900
Per diem/Allowances 890,000 526,000
Representation and entertainment 684,433 540,524
Business development 115,696 108,395
Reproduction 47,892 101,850
Other maintenance and operating expenses 1,714,465 1,544,596
Losses
Loss on Palay shrinkage 653,112 1,035,506
Communication expense
Communication 555,804 479,635
Utility expenses
Light, power and water 417,879 395,589

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 2016 2015
Travelling expenses
Travelling Expense - Local 388,477 368,230
General Services
Security services 289,116 217,560
Repairs and maintenance
Spare parts 190,329 328,668
Repairs and maintenance 171,067 212,434
Gasoline, oil and lubricant expenses 127,791 129,087
10,287,483 10,488,612
Non-cash expenses
Depreciation 1,425,972 965,215
Impairment loss 744,291 0
Amortization 55,204 46,709
2,225,467 1,011,924
Financial expenses
Interest and other bank charges 700 79,384
23,144,437 20,399,655

18. EMPLOYEES BENEFITS

18.1 Compensation and Other benefits

Expenses incurred for salaries and employee benefits are presented below:

2016 2015

Salaries and wages 5,042,595 4,062,645

Bonus and incentives 2,862,550 2,080,620
Other benefits 2,250,030 2,044,620
Social security costs 363,501 298,138
Overtime pay 112,111 63,313
10,630,787 8,549,336
Directors’ remuneration
Per diem 890,000 526,000
Bonus and incentives 0 270,400
890,000 796,400
11,520,787 9,345,736

18.2 Retirement benefits

The MSI Retirement Plan is a participant to the LBP Subsidiaries Retirement Benefit
Plan which is non-contributory. The Plan was approved by the Board of Directors for
implementation on July 20, 2010.

The Report on Valuation dated October 12, 2016 of the MSI Retirement Plan for
Valuation dates: January 1, 2015, December 31, 2015 and December 31, 2016
contains, among others, the following:

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Characteristics of the Defined Benefit Plan and its Associated Risks

The Masaganang Sakahan, Inc. Retirement Plan is non-contributory and of the defined
benefit type which provides a retirement benefit equal to one-half month basic salary for
every year of service, where one-half shall include fifteen (15) days salary based on the
latest salary rate, five (5) days of service incentive leaves, and one-twelfth (1/12) of the
13th month pay.

Regulatory Framework in which the Retirement Plan Operates

In accordance with the provisions of the Labor Code, MSI is required to pay eligible
employees at least minimum regulatory benefit upon normal retirement, subject to age
and service requirements. If the benefit under the Retirement Plan is less than the
benefit provided by the Labor Code, MSI is required to pay the deficiency.

Responsibilities of Trustees

The Retirement Plan Trustee, as appointed by MSI in the Trust Agreement executed by
and between MSI and the duly appointed Retirement Plan Trustee, is responsible for the
general administration of the Retirement Plan and the management of the Retirement
Fund. The Retirement Plan Trustee may seek the advice of counsel and appoint an
investment manager or managers to manage the Retirement Fund, an independent
accountant to audit the Fund and actuary to value the Retirement Fund. As the
administrator of the Retirement Plan, the Retirement Plan Trustee (rather than the MSI)
is responsible for the ultimate control, disposition, or management of the money received
or contributed.

Unusual or Significant Risks to which the Retirement Plan Exposes the MSI

There are no unusual or significant risks to which the Retirement Plan exposes the MSI.
However, in the event benefit claim arises under the Retirement Plan and the Retirement
Fund is not sufficient to pay the benefit, the unfunded portion of the claim shall
immediately be due from MSI to the Retirement Fund.

Plan Amendments, Curtailments, or Settlements

There was no plan amendment, curtailment, or settlement recognized for the financial
years ended December 31, 2015 and December 31, 2016.

Amounts Recognized in the Financial Statements

The valuation results are based on the employee data as of valuation dates. The
discount rate assumption is based on the PDEx (PDST-R2) benchmark market yields on
government bonds as of the valuation dates (or latest available) considering the average
years of remaining working life of employees as the estimated term of the benefit
obligation.

It is assumed that MSI initially applied the Amended Philippine Accounting Standard
(PAS) No. 19(R) (as amended in June 2011) on January 1, 2015. The amended PAS
19(R) simplifies the reporting of the defined benefit cost by introducing the Net Interest
Approach, which disaggregates the defined benefit cost into the following components:

17
 1. Service Cost (cost of services received);
2. Net Interest (financing effect of paying for benefits in advance or in arrears);
and
3. Remeasurements (period to period fluctuations in the amounts of defined
benefit obligations and plan assets).

Under the Net Interest Approach, Service Cost and Net Interest on the net defined
benefit liability (asset) are both recognized in Profit or Loss, while Remeasurements of
the net defined benefit liability (asset) are recognized outside profit or loss in Other
Comprehensive Income (OCI). It is further required by Amended PAS 19(R) that
remeasurements recognized in OCI shall not be reclassified to profit or loss in a
subsequent period. Instead, the Company may either accumulate the remeasurements
in OCI or transfer those amounts recognized in OCI within equity in accordance with
Amended PAS 19(R)122.

Upon initial application of the amended accounting standard, the Defined Benefit
Obligation (DBO) is P6,662,345 and the Fair Value of Plan Assets is P2,591,667
resulting in a Net Defined Benefit Liability at transition amounting to P4,070,678.

As of December 31, 2015, the Defined Benefit Obligation is P6,951,391 while the Fair
Value of Plan Assets is P2,596,616, resulting in a Net Defined Benefit Liability of
P4,354,775.

As of December 31, 2016, the Defined Benefit Obligation is P7,987,829 while the Fair
Value of Plan Assets is P4,166,753, resulting in a Net Defined Benefit Liability of
P3,821,076.

The components of the Defined Benefit Cost (DBC) recognized in Profit or Loss (P&L)
are:
1. The Service Cost (Current and Past), and
2. Net Interest on the Net Defined Benefit Liability (Asset).

The Defined Benefit Cost to be recognized in P&L as of December 31, 2015 and
December 31, 2016 are expenses of P526,680 and P513,587, respectively.

The components of the Defined Benefit Cost recognized in OCI are the
remeasurements, which consist of the Actuarial Gains and Losses during the year on the
DBO, return on Plan Assets, and Changes in the Effect of the Asset Ceiling. The DBC
recognized in OCI as of December 31, 2015 and December 31, 2016 are Expense
(Income) of (P242,584) and P826,515, respectively.

The Fund is being administered by the LBP Trust Banking Group who is responsible for
the investment strategy of the Plan. As of December 31, 2016, the amount of P513,587
was recognized as other benefits and recorded as Payable-Miscellaneous to the Fund.

18
19. COMPLIANCE WITH TAX LAWS

In compliance with the requirements set forth under Revenue Regulation No. 15-2010,
hereunder are the information on taxes, licenses and fees paid or accrued during the
taxable year:

A. Local

2016 2015
Mayor's permit - Head Office & SRGC 794,468 956,016
Real estate tax 155,227 249,186
Community tax - Head Office 10,500 10,500
Barangay clearance 2,200 2,550
962,395 1,218,252

B. National

2016 2015

NFA License 32,846 33,250

C. Withholding taxes paid/accrued for the year:

2016 2015
Taxes on compensation and benefits 898,147 738,056
Creditable withholding tax/es 1,199,587 389,301
2,097,734 1,127,357

D. 2005 Deficiency tax paid during the year

2016 2015
Corporate income tax 0 1,086,147
Value added tax 0 0
Expanded withholding tax 0 34,982
0 1,121,129

20. INCOME TAX EXPENSE

Tax liabilities for the current period are measured at the amount expected to be paid to
the tax authority. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted at reporting date.

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The provisions for income taxes were computed as follows:

2016 2015
Net income before tax 38,612,499 36,452,242
Less: Income subjected to final tax 301,453 376,437
Net income subject to tax 38,311,046 36,079,805
Tax rate 30% 30%

Provision for income tax 11,493,314 10,823,942

21. RELATED PARTY TRANSACTIONS

A Management Contract exists between the MSI and the LBP wherein MSI guarantees
the purchase of rice in amounts equivalent to the rice requirements of the employees of
the Bank. Also, there is a Payment-in-Kind Program wherein MSI undertakes the
collection and remittance of LBP’s loan receivables from farmers/cooperatives in the
form of palay and rice, the value of which is payable to the Bank within 90 days.

Some officers of LBP constitute the Board of Directors and Executive Committee of MSI.

The transactions of MSI with LBP, the parent corporation, are as follows:

2016 2015

Sales - rice allocation of LBP employees 231,896,705 224,815,942

Outstanding receivables 66,870,797 62,220,476
Receivables - miscellaneous from LBP Officers 0 35,000
Outstanding payables 59,311,362 61,130,991

358,078,864 348,202,409

22. COMPENSATION OF KEY MANAGEMENT OFFICIALS

The basic salary received by the key management official amounted to P857,000 and
P780,000 for CY 2016 and 2015, respectively.

20